TRACKING THE AUTHOR OF THE GLOOM BOOM DOOM REPORT AND GOLD VIGILANTE, MARC FABER AN UNOFFICIAL TRACKING OF HIS INVESTMENT COMMENTARY

Thursday, April 26, 2018

The Indian Economy Has Massive Potential, But Serious Problems Still

There is a lot of liquidity here in Asia. But offsetting that, there is also a lot of debt and the debt level in the world nowadays as a percent of the economy is more than 50% higher than it was in 2007 before the crisis occurred. We had this modest economic expansion since June 2009 but it was driven by money printing and credit and we have reached probably the level of credit where additional credit will not do much good.

India from a longer term point of view is still a good proposition but India is not exactly a problem-free country. There is leverage in the system and there has been fraud and there are still some unsettled political events that may happen.

I would say given that the market has actually rallied very strongly over the last few years and that we have reached a high at 36400 on January 29th , we could easily decline by around 20% from the highs that would take us below 30000. Long term, I am optimistic but we have to realise that if one asset class goes down, fund managers will also sell another one even though the fundamentals may be favourable but they just get out and build up their liquidity because on institutional side, the funds are holding very little liquidity. So, they may build up liquidity and that can then bring about selling pressure everywhere.

I do not think that dynamics have changed a lot. I still have a view that over the next 10 years, you will make more money in India than say in the US. In fact, looking at the various economies around Asia and the world, I would feel reasonably confident to say that India has a growth potential of say approximately 6% per annum which to Indians may not sound a lot but that is much better than the Europe and the US.

I do not think that this is a problem. The problem in India is more that Modi has some difficulties in reducing the still enormous bureaucracy. It may have improved somewhat but there’s still a lot of bureaucracy and there are still a lot of bad loans in the books of banks and then there is also the valuation issue. Blue chips in India sat at 40-50 times earnings. I do not consider that to be a low valuation. These factors could easily contribute to a big -- 20-30% disruption.